August 12, 2009

Media-Saturn challenges Best Buy

Roland Weise, CEO Media-Saturn (photo: Martin Hangen)
Wide world: Roland Weise throws down the gauntlet to Best Buy
Media-Saturn chief executive Roland Weise wants to oust US giant Best Buy from its position as the world's leading home electronics retailer.

His optimism is buoyed by H1 results that have generally outfaced the current slowdown in the world economy.

Media-Markt and sister company Saturn posted revenues of €8.7bn for the period – up 2.9 per cent.

This surprising performance gives the lie to those pundits who had speculated that cyclical consumer goods businesses would be particularly badly hit in the global recession.

But however one may admire Roland Weise's bullish stance and ambition, a closer look at Media-Saturn's international figures doesn't exactly underline his message.

Weise wouldn't be Weise, however, if he didn't take issue with this statement in an interview with Lebensmittel Zeitung.

Difficulties in Eastern Europe

In fact, foreign revenues grew at a lower rate of 2.2 per cent, and even this was powered by new store openings. On a like-for-like basis, sales would have fallen by 5.5 per cent.

Although business was good in Italy and Spain, weak currencies in Eastern Europe meant that revenues in the region fell by 6 per cent. Adjusted for currency, however, sales rose by 13.5 per cent.

The difficulties in Eastern Europe meant that the share of business achieved outside Germany has fallen by 1.2 per cent to 53.1 per cent.

Big in Greece
 
Media-Saturn fully intends to continue international expansion in H2 and will open its 800th outlet in Thessalonica/Greece at the end of September or the beginning of October.

In view of the turbulence on international markets Weise declined to give guidance for H2. However, if revenues increase at their current rate, they could reach €20bn this year, compared with around €19bn in 2008.

Ebit in H1 came in at €130m down €7m from a year earlier. This was attributed to exceptional items, including an anniversary celebration advertising campaign and expansion costs in Russia, Sweden and Turkey.

Weise is combating this by optimising cost structures, including the reduction of inventories and the scrapping of external depots.

Star in the Metro Firmament
 
Eckhard Cordes, Chief Executive of parent company Metro Group, ought to be happy with Roland Weise, however. The fact that Metro was able to post a small increase in H1 revenues (0.2 per cent) was exclusively due to the performance of its electronic entertainments subsidiaries.

INTERVIEW

Herr Weise, you took a hit in Eastern Europe in H1.

Yes, but our business is stable in the region, which is hardly the case for our competitors. Their revenues are falling and they are experiencing problems with both suppliers and re-insurers.

Media-Markt and Saturn have trimmed store opening from 70 to 50 outlets this year. Is it really true that you can't find enough sites, or is cash-flow tight?

Our liquidity is even better than last year. We would like to open more store and are more than able to do so.

Your ebit margin has continued to fall over the last two years and has now fallen to below 4 per cent.

True, but this is essentially due to our entry to Russia, Sweden and Turkey. The cost of this expansion, however, was budgeted for in advance.

Are you saying that the decline in ebit is only due to foreign expansion?

Before you gain any false impression: we achieve very good results compared to our competitors. There are, however, other factors. Many of our foreign stores have much longer opening hours than in Germany i.e. seven days a week till late at night. This raises staff costs.

Also it is more expensive to recruit adequately trained staff.

You intend to open a new internet shop in Germany. Won't clicks hurt your mortar?

We can offer a far larger range on the internet than in the stores, but customer service will be effected through our retail outlets. Thus, there will be strong interaction between the two divisions. Also the internet will extend customer reach.

In Germany, it is virtually impossible to find sites with sales surfaces over 3,000 m² (32,292 ft²). Although one option is to continue acquiring competitors who operate smaller stores, this is not a real option as the trend in our business is towards larger stores.

You need a lot of space to display, for example, home cinema equipment in a professional way. Our main competency remains in big stores.

What are your goals?

We have a clear aim. We want to be the world's number one home electronics retailer.

Meaning?

We intend to push Best Buy from its top spot. That's a big goal, but we can do it.

Does that mean that you are also going to enter the USA?

No, at least at the moment there are much more exciting things to do, for example, in Asia.

So when are you starting in China?

We have nearly concluded negotiations with our joint-venture partner Foxconn. We are currently looking for sites and will be making our début in Shanghai.

Will you restrict your Asian expansion to China?

We want to make a start in the People's Republic, but there are many other interesting countries and markets in Asia. We are currently on a steep learning curve in the region.

To date you have nearly always expanded into countries where Metro Cash & Carry has paved the way beforehand. You seem to want to emancipate yourself from this?

We are quite capable of going where Metro hasn't been before. One example is Sweden. Unlike with Cash & Carry, our concept requires a fairly high level of consumer sophistication. Countries such as Pakistan, which Metro Cash & Carry has just entered, aren't yet interesting enough for us.

Do you think that Best Buy will come to Germany?

If the Americans want to achieve scale on our market, they will be obliged to make a major acquisition, but there is virtually no-one they could buy here. Besides, we've never been afraid of competition.
 
  
Related article in German: Lebensmittel Zeitung, no. 32, 07.08.2009, by Mathias Vogel 


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